July RBA Decision: Interest Rate Held At 1.50%

At this month’s meeting, the Reserve Bank of Australia (RBA) held the cash rate at the record low of 1.50%.

This marks the tenth month in a row that the RBA has held rates steady, with the last rate movement taking place in August 2016 with a 25 basis point rate cut.

Economists correctly predicted today’s decision, with all 24 economists surveyed by Bloomberg forecasting that the cash rate would remain on hold in July.

However, 8 of the 24 Bloomberg forecasters expect a rate hike by mid-2018, and 5 are still predicting rate cuts, while the remaining 11 economists see rates remaining unchanged.

RBA remains optimistic about the economy

In the monetary policy statement accompanying today’s decision, RBA Governor Philip Lowe said the unchanged cash rate is “consistent with sustainable growth in the economy and achieving the inflation target over time”.

The Governor expressed that the pick-up in the global economy is continuing, with the rise in commodity prices over the past 12 months boosting Australia’s national income.

The RBA also expects the Australian economy to strengthen gradually, as the country transitions to lower levels of mining investment at the end of the boom.

“Business investment has picked up in those parts of the country not directly affected by the decline in mining investment,” said Mr Lowe.

At the same time though, the RBA expressed that consumption growth remains subdued, “reflecting slow growth in real wages and high levels of household debt.”

“The decision comes on the back of upbeat labour market reports, with unemployment falling to 5.5. per cent since the last meeting and a trend towards more job advertisements,” said Mr Lawless.

But just last week, former RBA board member John Edwards said it is “distinctly possible” that the RBA could raise rates over 8 times in the next 2 years, “if the RBA’s economic forecasts prove correct”.

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